Having found a profitable trading system that you have already tried, how can you be sure that this system will produce the same profits in the future?
Nobody can predict the future, your system can easily generate losses for years to come, or it may not be negotiable.
There are some tests that you need to take before accepting the trading system, these tests will show how strong your system is, and by passing these tests you are more likely to show profits in the future.
First test: Make sure to adjust the liquidity base, so that entry and exit prices can be achieved.
Test 2: Take another look at your trading systems and rules (this is very important).
I have made dozens of commercial systems that have shown excellent results, but upon close examination, have proven that I cannot follow them in real life.
Check for a stock that has made a lot of money, as the system might not be profitable without this stock.
Test 3: Change the simulation start date 2 or 3 times, if it still shows good results, you passed Test 3.
Test 4: Change the values of some parameters or variables that you have in the rules of your trading system, you have to change one value then test it and change another then test …
If the results are not significantly affected, you may pass Test 4.
Fifth test: try to prevent the system from purchasing 20% or more of the shares you previously purchased by backtesting. Then run the test again. To pass this test, the system must show the same previous results.
Test 6: The stock chart should look good, check some statistical values such as the intensity index, the ranking index, the standard deviation, the maximum drawdown, the average day for retracement of profits …
It depends on the risks you are willing to take, but only choose systems that have: higher sharpening ratio, higher rating ratio, lower standard deviation, lower maximum …
Exclude systems that have a high maximum drawdown, 1 standard deviation, and average day for payback.
I think the most important factor is the average earnings recovery day.
It is the average number of days that you must wait for your equity to return to the same level before the downgrade occurs.
High values will allow you to wait a long time before retrieving profits and certainly many traders will abandon their trading system, and this is the worst thing that can happen to a trader because right after that, the system will show excellent results. (This always happens)
These tests are very restrictive and may reject all of your trading systems, but when you trade you will put your money, your real money, so I think you have to be very selective to take advantage of all possibilities.